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Stochastic leverage effect in high-frequency data: a Fourier based analysis

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  • Imma Valentina Curato
  • Simona Sanfelici

Abstract

The stochastic leverage effect, defined as the standardized covariation between the returns and their related volatility, is analyzed in a stochastic volatility model set-up. A novel estimator of the effect is defined using a pre-estimation of the Fourier coefficients of the return and the volatility processes. The consistency of the estimator is proven. Moreover, its finite sample properties are studied in the presence of microstructure noise effects. The Fourier methodology is applied to S\&P500 futures prices to investigate the magnitude of the stochastic leverage effect detectable at high-frequency.

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  • Imma Valentina Curato & Simona Sanfelici, 2019. "Stochastic leverage effect in high-frequency data: a Fourier based analysis," Papers 1910.06660, arXiv.org, revised Mar 2021.
    • Handle: RePEc:arx:papers:1910.06660
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